Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to The Money Stuff Podcast, your weekly
Speaker 2: podcast where we talk about stuff related to money. I'm
Speaker 2: Matt Levian, and I write the Money Stuff column for
Speaker 2: Bloomberg Opinion.
Speaker 1: And I'm Katie Greifel, a reporter for Bloomberg News and
Speaker 1: an anchor for Bloomberg Television.
Speaker 2: Katie, we got some news this week.
Speaker 1: Oh, big time. We're going to talk about Bill Ackman obviously,
Speaker 1: we're going to talk about Andrew Left, which should be fun.
Speaker 1: And then we're going to talk about BONDI TFS which
Speaker 1: maybe will maybe we'll be fun. We'll find out where
Speaker 1: to start.
Speaker 2: Three.
Speaker 1: Oh my gosh. Yeah, So we went from twenty five
Speaker 1: billion dollars to two and a half to four billion
Speaker 1: dollars to two billion dollars. Now we're at I think
Speaker 1: zero dollars.
Speaker 2: There was kind of a pit's up at ten billion
Speaker 2: as well.
Speaker 1: I know I was in there somewhere.
Speaker 2: There was a hard gap at ten billion, which which
Speaker 2: they did not hit the hard gap.
Speaker 1: No, no, So I don't even know what to say.
Speaker 1: I mean, this was pretty spectacular to follow. We knew
Speaker 1: that he was road showing this ipo of a closed
Speaker 1: end funds Pershing Square USA exactly. He has a European
Speaker 1: version which trades at a big discount, which is a
Speaker 1: material part of this story, and it kept getting downsized
Speaker 1: and now it was pulled entirely. They're reevaluating it. And
Speaker 1: along that path we got a letter that was released
Speaker 1: which maybe Bi Lackman didn't know was going to be released,
Speaker 1: and then we had some investors bowing out as well.
Speaker 2: Right, So the story started with they're doing a road
Speaker 2: show for this IPO. There was talk of it being
Speaker 2: twenty five billion dollars, which would be a lot of
Speaker 2: money for a closed end fund, or just in general,
Speaker 2: it would be a very very very large IPEA. So
Speaker 2: he's got all these So he runs a hedgehund called
Speaker 2: Pushing Square. There's a management company that runs the hedge
Speaker 2: funds and that like collects the fees from the hedge
Speaker 2: funds and the clothes end funds. And he recently sold
Speaker 2: about a ten percents take in the management company to
Speaker 2: a few institutional and highnight Worth investors. And last week
Speaker 2: he sent a letter to those guys, those people who
Speaker 2: were investors in his management company saying essentially, hey, it
Speaker 2: would be really helpful if you would put in some
Speaker 2: orders in the Pushing Square USA Closed End Fund IPO.
Speaker 2: And I read that letter and it seemed to me
Speaker 2: that that's not a good sign. I probably underplayed this
Speaker 2: when I wrote about it, because there are other possible interpretations, right,
Speaker 2: Like one possible interpretation is that Bi Lackman is just
Speaker 2: unusually candid about how the IPO process works to his
Speaker 2: management company investors. But it sort of seemed like he
Speaker 2: was saying, hey, guys, it would really help out a
Speaker 2: lot if you could put it in order. Yeah. I
Speaker 2: used to be a capital markets banker and you would
Speaker 2: do a deal and you would get calls from investors.
Speaker 2: I would say, how's the deal going, And there's only
Speaker 2: one answer you can give them. You say, the deal
Speaker 2: is going great. There's so much demand. You really better
Speaker 2: put your order in because otherwise you're going to miss
Speaker 2: out because this deal is going so good, so many
Speaker 2: people wanted to buy it. You can't like necessarily lie
Speaker 2: if the dealer is going poorly, but you say things like, oh,
Speaker 2: there's a lot of interest, we're having a lot of meetings.
Speaker 2: That feedback is really good. You should put in your
Speaker 2: order quick, right, You try to create the sense of excitement.
Speaker 2: If the deal is not going well, then like you
Speaker 2: might call up your best friend investor and say, hey,
Speaker 2: it would really help out if you would put in
Speaker 2: a big order, because that would get us over the line,
Speaker 2: that would create some momentum. And it sort of seemed
Speaker 2: like that was what Acman was doing by sending this
Speaker 2: letter to the people who are already in his management company.
Speaker 2: Problem is, if you do that publicly, everyone can read it,
Speaker 2: and no, that's a bad sign. So I do think that,
Speaker 2: like the letter did not necessarily help very much, because
Speaker 2: I do think that some people read it and think, well,
Speaker 2: this suggests that there's not a ton of demand.
Speaker 1: Yeah, and I was just going to bring up bow
Speaker 1: Post because you did name a few investors in that
Speaker 1: letter to investors saying hey, it would help if you
Speaker 1: could invest more. He mentioned that baal Post Capital had
Speaker 1: previously committed to investing one hundred and fifty million dollars,
Speaker 1: and then Bloomberg News broke the news that actually they
Speaker 1: were pulling out. There weren't reasons given, but reportedly he
Speaker 1: didn't like being named.
Speaker 2: Yeah, I mean, no one wants to be named as
Speaker 2: the endorser for a deal unless I've sort of explicitly
Speaker 2: agreed to that. I think the Bloomberg story suggested that
Speaker 2: there's some political seth Klerman as a Democrat and Bill
Speaker 2: Lackman has become like a very vocal Trump supporter. But
Speaker 2: I don't know. I think that either of those are
Speaker 2: possible explanations. But like, here's another explanation. If you interpreted
Speaker 2: that letter to mean there's not a ton of demand,
Speaker 2: then even if you were already in the book, you
Speaker 2: would take your order out of the book, right, yeah,
Speaker 2: Because this is the problem with this thing is like
Speaker 2: you can be a long term investor, right you can
Speaker 2: say I like Bill Lackman. I think that he's going
Speaker 2: to compound my money at a high rate, and so
Speaker 2: I want to be invested in his fund and I'll invest,
Speaker 2: you know, this month and hold it for ten years
Speaker 2: and expect Bill Ackman to compound my money for me.
Speaker 2: But the problem is that on the first day of trading,
Speaker 2: this thing is either going to trade up or it's
Speaker 2: going to trade down. And as you said, his existing
Speaker 2: clothes unfund trades at a big discount to its net
Speaker 2: ASSEID value. Most closed un funds traded discounts to their
Speaker 2: net asset value. And so if you're an investor, instead
Speaker 2: of buying the shares at fifty dollars in the IPO,
Speaker 2: you might say, well, I'll just wait until the next
Speaker 2: day and I'll buy them at a discount. I'll buy
Speaker 2: them at like forty five or whatever. So it would
Speaker 2: be sort of silly to buy on the IPO if
Speaker 2: you could wait to buy at a discount. The whole
Speaker 2: point in the IPO process is for Bill Ackman to
Speaker 2: tell people, no, no, it's going to trade it at
Speaker 2: a premium, right, and so he makes that case in
Speaker 2: this letter, but he sent these investors and that was
Speaker 2: then made public sort of by accident. He makes the
Speaker 2: case that is going to trade at a premium. You know.
Speaker 2: The essential case is that a lot of retail investors,
Speaker 2: for one reason or another, aren't going to get shares
Speaker 2: in the IPA. Like the main one is that most
Speaker 2: retail investors, most retail brokerages aren't going to get allocated
Speaker 2: anything in the IPO. Also, there are some European retail
Speaker 2: investors who would want to buy shares, but who can't
Speaker 2: buy them in the IPM. So all these retail investors
Speaker 2: want to buy shares in the bill Ackman IPO. They
Speaker 2: can't buy it at the time of the IPO, so
Speaker 2: they'll buy it the next day in the aftermarket, and
Speaker 2: there'll be so much retail demand and maybe so much
Speaker 2: institutional demand that the IPA will trade up. And so
Speaker 2: if you wait to buy in the aftermarket, you'll have
Speaker 2: to pay fifty five dollars a share instead of fifty
Speaker 2: dollars a share. But the IPO was so big that
Speaker 2: the really essential question is is there going to be
Speaker 2: enough institutional demand in the aftermarket? Is there going to
Speaker 2: be institutional demand the next day? And they were just
Speaker 2: kept being indications that there was just not enough institutional
Speaker 2: demand to like price a really tight large IPO. And
Speaker 2: so if you thought that there wasn't that much institutional demand,
Speaker 2: then you'd say, well, it'll trade down to forty five
Speaker 2: and I'll wait until the buy it the next day,
Speaker 2: and then there will be no institutional demand. Right, if
Speaker 2: everyone's going to wait to buy it, then no one
Speaker 2: will buy it in the idea.
Speaker 1: Well, two points on that, the first one being this
Speaker 1: statement that they put out. Did acknowledge that they said
Speaker 1: that this question.
Speaker 2: That's the whole thing.
Speaker 1: Yeah, basically would investors be better served waiting to invest
Speaker 1: in the aftermarket than the IPO. Yes, it sounds like.
Speaker 1: I mean if you just look at the history of
Speaker 1: closed don funds. Also to the point of retail demand,
Speaker 1: I mean, Bill Lackman has a million something followers on Twitter,
Speaker 1: which is a lot. That's a huge audience, but it
Speaker 1: seems quite tricky to turn followers into investors. That's not
Speaker 1: necessarily guaranteed. And you think about the following that he
Speaker 1: has on Twitter, I would imagine that the majority of
Speaker 1: those people, or at least a sizeable portion, aren't necessarily
Speaker 1: following him for his investing acumen.
Speaker 2: I mean, I hear you, right. I mean he's courting
Speaker 2: controversy and a lot of Twitter opinions and not mainly
Speaker 2: tweeting about. Part of that, by the way, is like
Speaker 2: he has said that he wants to be able to
Speaker 2: tweet more about investing, and because of the legal structures
Speaker 2: that he currently operates, and he can't just go have
Speaker 2: his tock pics on Twitter, and once he launches Pershing
Speaker 2: Square USA, he can. But yeah, I hear you right,
Speaker 2: I mean, like his Twitter following is not purely about investing.
Speaker 1: What I am wondering is what this means for the
Speaker 1: overall Pershing Square IPO, because he did sell that ten
Speaker 1: percent steak for a billion dollars, just over a billion dollars.
Speaker 1: And I mean they've said that the success of this
Speaker 1: pie Sus IPO is very important to the eventual IPO
Speaker 1: of Pershing Square.
Speaker 2: Oh yeah, I mean he sold a ten percent stake
Speaker 2: in the management company. The management company is just like
Speaker 2: the thing that collects fees from the funds that he
Speaker 2: runs right right now, he runs about eighteen billion dollars
Speaker 2: worth of funds, and they sold the stake in the
Speaker 2: management company at a ten billion dollar valuation. It's sort
Speaker 2: of crazy to imagine that the entity that collects fees
Speaker 2: on eighteen billion dollars worth of funds is worth ten
Speaker 2: billion dollars, right. That can't be right, right? That implies
Speaker 2: that he would take like half of the value from
Speaker 2: like his investors' funds for himself or for his investors. Now,
Speaker 2: the only way you can get to a ten billion
Speaker 2: dollar valuation for the management company is if you think
Speaker 2: that the management company is very soon going to manage
Speaker 2: a lot more money. And I think obviously the case
Speaker 2: that was made to these management company investors, is we
Speaker 2: are going to transform from a smallish hedge fundition manager
Speaker 2: to a sort of more institutional asset manager that attracts
Speaker 2: a lot of retail interest and a lot of institutional
Speaker 2: interest and runs tens of billions of dollars and has
Speaker 2: a publicly traded permanent capital vehicle, and has like the
Speaker 2: steady stream of large earnings from running large amounts of money.
Speaker 2: And then, you know, I think if you were investing
Speaker 2: in the measurment company, somewhere in your mind was the
Speaker 2: notion of a twenty five billion dollar pieces IPO and
Speaker 2: a zero dollar pieces ipo makes that case more challenging.
Speaker 2: The other thing I want to say about the management
Speaker 2: company is so I wrote on Thursday about the problem here,
Speaker 2: which is that it's very hard to sell the these
Speaker 2: shares at nav because you expect to close on fund
Speaker 2: to trade at a discount. Everyone wants a discount. Well,
Speaker 2: how do you sell the shares at a discount? Because
Speaker 2: the shares are just it's a pot of money, right,
Speaker 2: So you can't sell you know, one hundred dollars worth
Speaker 2: of money at ninety dollars because then you only have
Speaker 2: ninety dollars. So how do you create a discount? And
Speaker 2: I wrote about some possible ways to do that, which
Speaker 2: come down to kind of Pershing Square putting in some money.
Speaker 2: But several readers emailed me immediately to be like, well,
Speaker 2: here's the obvious way to do it. The obvious way
Speaker 2: to do it is to put some of the management
Speaker 2: company into pieces. So instead of really, I've been seating
Speaker 2: the fund with like a billion dollars of his own
Speaker 2: money for free, he could see it with ten percent
Speaker 2: of Pershing Square the management company, for free, and then
Speaker 2: pieces would have a net asset value more than just
Speaker 2: the cash that investors put in. And then the investors say, okay,
Speaker 2: I'm getting a discount and they put in their money.
Speaker 2: And this is a good idea. And you know, someone
Speaker 2: drew the analogy to like Vanguard, where Vanguard invest do
Speaker 2: own a piece of the management company. It's because it's
Speaker 2: a mutual company. But the problem here is you sort
Speaker 2: of already promised the management company in an IPO to
Speaker 2: these other investors, right, so to say we're going to
Speaker 2: push the management company into pieces is a little bit
Speaker 2: more challenging. So what does it mean for the for
Speaker 2: the IPO added, It's like a setback, right, I mean
Speaker 2: the IPO was I think premised on the Pieces IPO
Speaker 2: going really well, and with having a hard time raising
Speaker 2: money for Pieces, it's harder to get to a ten
Speaker 2: billion dollar valuation for the management company.
Speaker 1: There's also the question of why does he want to
Speaker 1: be public, Like why does he want to take the
Speaker 1: overall hedge fund company public? I mean, there aren't many
Speaker 1: of them. The obvious example is the Sculptor Rhythm thing,
Speaker 1: which didn't exactly turn out well, which also had Bill
Speaker 1: Lackman involvement.
Speaker 2: Yeah, minor involvement. Yeah, I don't know. You know, the
Speaker 2: reason for launching the Clothes End Fund is quite straightforward, right,
Speaker 2: I mean, you have permanent capitical vehicle. You get to
Speaker 2: go on TV and tweet your stock picks and then
Speaker 2: hopefully you can create some momentum in your stocks.
Speaker 1: I mean, he could just launch an ETF. I'll just
Speaker 1: say it. I know, I know, permanent capital. That's very exciting.
Speaker 1: I still don't quite understand clothes and funds. I get
Speaker 1: it from the manager's point of view, permanent capital that
Speaker 1: seems really great, But from the investor point of view,
Speaker 1: I don't know why you would do that.
Speaker 2: No, I think he can make a good case for
Speaker 2: that here because he is not possibly like takeover inclined investor.
Speaker 2: Then knowing how much money you have for the long
Speaker 2: term is actually really important, right. I mean, if you
Speaker 2: have an ETF and they're withdrawals and you still have
Speaker 2: of your positions, right. That is easy to do if
Speaker 2: you are just the index one, right, But it's harder
Speaker 2: to do if you are doing the kinds of trades
Speaker 2: that b. Lackmann wants to do, which are like these
Speaker 2: like long term fundamental equity and trades, but also like
Speaker 2: you know, derivative trades. I mean, like some of their
Speaker 2: track record is from CDX beats going into COVID, and
Speaker 2: again that's harder to do if your capital can vanish
Speaker 2: every night. So I think that from his perspective, it's
Speaker 2: obviously to permanent capital, and I think he can make
Speaker 2: the case to investors that actually, like permanent capital is
Speaker 2: the way that I create value and ETF doesn't make
Speaker 2: sense for the kind of investing that I do. I
Speaker 2: think that's a reasonable case.
Speaker 1: Yeah.
Speaker 2: So the question of why does he want to take
Speaker 2: the management company public? I don't know. I mean, some
Speaker 2: of it is like I think anyone else, like, you know,
Speaker 2: you want some legacy, right. I mean there's this perception
Speaker 2: that with like the sort of famous Hedgehund managers of
Speaker 2: like Acman's vintage, Like, there's a perception that the management
Speaker 2: company is like that one guy. And I think that
Speaker 2: they would like to have a proof of concept that
Speaker 2: actually it's an institution and really the investing team has
Speaker 2: kind of transitioned away from him and it's not just him,
Speaker 2: and it's a permanent entity that will exist forever and
Speaker 2: provide wealth for him forever, right, instead of like when
Speaker 2: he quits, the thing vanishes. So I think there's a
Speaker 2: temptation for anyone who runs a company to take that
Speaker 2: company public so you can you know, take money off
Speaker 2: the table and have permanent shares instead of just like
Speaker 2: your own labor. But right, the track record of it
Speaker 2: is kind of challenging.
Speaker 1: Yeah, well let's see if pieces gets off the ground
Speaker 1: when it comes to the eventual pershing square IPO. Apparently
Speaker 1: he's already thought of how to make this structure work.
Speaker 1: That was also in the press release that don't.
Speaker 2: Get excited, yeah, excited to see like next week's piece
Speaker 2: of structure. I think putting part of the management company
Speaker 2: into it, putting some cash into it that doesn't come
Speaker 2: from investors or or possibilities. Yeah, like I you know,
Speaker 2: I wrote it like SPACs do kind of provide the
Speaker 2: technology for this, right, like get spack. At a very
Speaker 2: high level, is a sponsor puts in some money to
Speaker 2: pay the startup costs. Then the sponsor kind of sells
Speaker 2: shares at net asset value to investors, and then if
Speaker 2: the sponsor does a good job and finds a good deal,
Speaker 2: the sponsor gets a lot of like free upside. So
Speaker 2: there's this like Carter, where like if the thing is
Speaker 2: those kind of met the shareholders get all their money back,
Speaker 2: so they are protected against the problems of investing at
Speaker 2: nav and then having the navy go down. If the
Speaker 2: thing does poorly, then the manager the sponsor eats the loss,
Speaker 2: and if the thing does really really well, the shareholders
Speaker 2: give up some of the upside and it goes to
Speaker 2: the sponsor. And so the sponsor has the sort of
Speaker 2: asymmetric trade where the sponsor puts in some money that's
Speaker 2: at risk, but then if it does really well, the
Speaker 2: sponsor makes a lot of money. You can imagine a
Speaker 2: structure like that for pieces, where you know, Bill Ackman
Speaker 2: seeds it with money, and if it trades below net
Speaker 2: asset value, he kind of bears the first loss so
Speaker 2: that the investors who buy in the IPO still get
Speaker 2: at least the amount of money they put in. And
Speaker 2: then if the thing does really well, he gets warrants
Speaker 2: or something so that he gets upside to compensate him
Speaker 2: for that. Like, that's a structure that could work. You
Speaker 2: could do something like that. That's easy enough.
Speaker 1: That's some good ideas here.
Speaker 2: Part of he wants to, you know, quit podcast and
Speaker 2: then go structure pieces mark two. But most of me,
Speaker 2: it doesn't. Most of me just wants the podcast about it.
Speaker 2: Andrew left.
Speaker 1: Andrew left, So this story broke. I think it was
Speaker 1: on Friday, that's right, because.
Speaker 2: I wrote on Friday and then I published on Saturday,
Speaker 2: because I didn't hit the send button on my email.
Speaker 1: It's really I that just made mistake.
Speaker 2: There, amateurs the column on Friday on the web and
Speaker 2: the terminal, and then I didn't hit send on the email,
Speaker 2: and no one told me until I told my wife
Speaker 2: I published the column. She's like, I didn't get it.
Speaker 1: I feel like there's some arbitrage to do there.
Speaker 2: If you had the inside information about my column, you
Speaker 2: could have traded Andrew Left features a day early. I
Speaker 2: don't know.
Speaker 1: I bring that up the timeline because it feels crazy
Speaker 1: that we haven't talked about this yet.
Speaker 2: Yeah, we just missed it last week.
Speaker 1: So set the scene for us. Set the table.
Speaker 2: So Andrew Left is a guy on Twitter. There's a
Speaker 2: lot of people like this who are activist short sellers.
Speaker 2: So what he does is he finds companies that he
Speaker 2: thinks are bad, sometimes on valuation, often because he thinks
Speaker 2: they're frauds, and he shorts their stock and then he
Speaker 2: publishes angry reports saying what a fraud they are, and
Speaker 2: then he tweets those reports and then their stock goes down,
Speaker 2: and that's how he makes money. A lot of these
Speaker 2: people are guys on Twitter who may or may not
Speaker 2: have something like a hedge fund or something called a
Speaker 2: hedge fund. But when Andrew Left got in trouble last
Speaker 2: week the SEC, one of its complaints about him was
Speaker 2: that he wasn't really running a hedge fund. He didn't
Speaker 2: know outside money. He was just a guy investing his
Speaker 2: personal account. I assume a lot of activists shorts are
Speaker 2: just guys investing their personal accounts, but it just sounds nicer.
Speaker 2: So Andrew Left is Andrew Left. But he's also Sitron Research,
Speaker 2: which just sounds fancier than just being a guy on Twitter.
Speaker 2: And honestly, I think he's kind of earned it, Like
Speaker 2: he's had a good track record of spotting frauds. You know,
Speaker 2: he really was instrumental in spotting big problems at Valiant
Speaker 2: Pharmaceuticals a few years ago in a way that really
Speaker 2: took billions of dollars off that market cap and was
Speaker 2: good investigative work. And he has a good track record
Speaker 2: of finding companies that will go down. So that's his deal.
Speaker 2: And last Friday, the SEC and the Department of Justice
Speaker 2: brought charges against him for doing alleged fraud. And basically
Speaker 2: they're accusing him of doing a reverse pupping dump. Right
Speaker 2: instead of like saying hey you should buy the stock
Speaker 2: and then selling it, he said hey, you should short
Speaker 2: the stock, and then he bought it. So their accusation
Speaker 2: is that he would short these stocks, he would publish
Speaker 2: angry reports calling them frauds, and then kind of the
Speaker 2: minute he published the stock would go down and he
Speaker 2: would buy back the stock. So five minutes or an
Speaker 2: hour a day after he published his report, he was
Speaker 2: no longer short, so he took all the risk off
Speaker 2: the table. And the SEC one I think, just doesn't
Speaker 2: like that because it just seems like, if you're doing
Speaker 2: it that way, you don't really think the stock is
Speaker 2: a fraud. You just want to move the stock down
Speaker 2: so you can make money, and you don't care what
Speaker 2: happens after that. I don't think that's right. I think
Speaker 2: the SEC is wrong about that. I think that Andrew
Speaker 2: Left has a lot of incentive to care about what
Speaker 2: happens after that first day because this is his livelihood,
Speaker 2: and if he's always wrong, the stocks will stop going
Speaker 2: down and this will stop working. The only way this
Speaker 2: works is that every time he says this company is
Speaker 2: a fraud, there's a good chance the company is actually
Speaker 2: a fraud. And if he keeps having a pretty good
Speaker 2: hit rate, then the stocks will keep going down and
Speaker 2: he can keep collecting profits on the first day and
Speaker 2: he doesn't have to wait until, you know, a year
Speaker 2: later when the company goes bankrupt. But the whole thing
Speaker 2: doesn't work unless he's got a pretty good hit rate.
Speaker 2: So the SEC doesn't like it for I think some
Speaker 2: reasons that are wrong. But the SEC also doesn't like
Speaker 2: it because he lied about it a lot, Like he
Speaker 2: would go on television and the reporters would say, sorry,
Speaker 2: you're still short, and he'd say, I'm still short, but
Speaker 2: he actually had covered. So it's like bad, you can't
Speaker 2: do that. And you know, you think about like a
Speaker 2: pumping dump, like a classic pumping dump, there's like nothing
Speaker 2: to it. It's like some guy in a telegram chat
Speaker 2: room saying you got to buy this microcap stock because
Speaker 2: it's going to go to the moon, and maybe they
Speaker 2: give some business case for it, but everyone knows they're kidding.
Speaker 2: You know, Yeah, it's discovered a cure for cancer. And
Speaker 2: then the stock goes up a little bit and the
Speaker 2: pump and dumper dumps the stock, and the pump and
Speaker 2: nupper says, oh, I'm holding on until he gets through
Speaker 2: one hundred. I'm all in on this, but he's lying
Speaker 2: and he's already sold the stock, and the SEC sort
Speaker 2: of sees that in reverse, and Andrew left. But I
Speaker 2: think the difference really is that a pump and dumper
Speaker 2: normally has no basis for recommending the stock other than
Speaker 2: like if we all buy the stock, it'll go up right.
Speaker 2: It's just a pure social market dynamic thing. And the
Speaker 2: only thing that that the audience cares about is that
Speaker 2: this pump and nupper is buying the stock. And if
Speaker 2: the pump and number is actually selling the stock, then like, yeah,
Speaker 2: it looks like frat with Andrew Left. I don't think
Speaker 2: that's how it works. Like, I don't think people were
Speaker 2: shorting those stocks or selling those stocks because they're like, oh,
Speaker 2: Andrew Left is short, I'd better be short too. I
Speaker 2: think they were short in the stocks because Andrew Left
Speaker 2: published reports saying this company is a fraud, and they
Speaker 2: thought that's probably true, and often it was true. The
Speaker 2: SEC complains about this coming called Kronoscrip, which is like
Speaker 2: cannabis company, and it was trading like nine or ten dollars.
Speaker 2: And Andrew Left said, I think this is a fraud,
Speaker 2: and I have a price target of three dollars and
Speaker 2: fifty cents, and then like the next minute, you know,
Speaker 2: the stock goes down and he covers his short and
Speaker 2: he never waits for it to get to three dollars
Speaker 2: and fifty cents and he gets out of the trade,
Speaker 2: and then you know, he lies about it and says
Speaker 2: I'm still short even though he's he's actually not short.
Speaker 2: But that stuff got to like two dollars and settled
Speaker 2: an SEC's case for a fraud. He was not wrong. Yeah,
Speaker 2: So like there's a lot of that where the SEC
Speaker 2: focuses on what he said about his own trading, but
Speaker 2: it doesn't focus on whether his reports were honest or accurate.
Speaker 2: And to me, this is not the law. But to me,
Speaker 2: like if the reports were honest and he was you know,
Speaker 2: largely right, then like, yeah, no harm.
Speaker 1: No fel So let's talk about what the bright red
Speaker 1: bad thing was. Was it that he was lying about
Speaker 1: his actual position in the stock? Had he not said, oh,
Speaker 1: I'm still short when he actually had closed out his position,
Speaker 1: would be be having this conversation.
Speaker 2: I think not. I mean the actual stuff that he's
Speaker 2: accused of lying about is mostly that, and then a
Speaker 2: lot of like he occasionally did deals with other investors
Speaker 2: where they would pay him for research or there he
Speaker 2: would you know, he would give them idea, they'd they
Speaker 2: have profit share. There was some like economic deals with
Speaker 2: other investors where he would deny He would go around saying,
Speaker 2: we've never been paid for research, We never like partner
Speaker 2: with any hedge fund, we're always independent, And in fact
Speaker 2: that wasn't really true. And again the SEC really did
Speaker 2: get mad at him for saying he was a hedge fund.
Speaker 2: He would like tweet things like you know, we want
Speaker 2: to reassure our investors that blah blah blah, and I say, oh,
Speaker 2: you don't have investors, right, Like yeah, Like that's dishonest,
Speaker 2: and like some pumpin' uppers like do sort of create
Speaker 2: the impression that they run a lot of money for
Speaker 2: outside investors in order to like gin up an audience.
Speaker 2: But I don't know. I feel like everyone kind of
Speaker 2: knew he was a guy on Twitter with like airs
Speaker 2: and like that's normal.
Speaker 1: I loved what you had in your column about like
Speaker 1: him tweeting that about like we want to re ensure investors,
Speaker 1: and you compared that to you know, you want to
Speaker 1: reassure your furroh one k investors as the manager of
Speaker 1: your four oh one k. I did lol in my
Speaker 1: car at that.
Speaker 2: I love it. By the way, you were reading my
Speaker 2: column in your car, which I know means listening to your.
Speaker 1: Robot read it, and you're exactly.
Speaker 2: I just feel like there's a lot of people in
Speaker 2: financial markets who are like I bought an ETF in
Speaker 2: my personal account one, so like I basically a fund manager. Yeah,
Speaker 2: you know, anyone could be a fund manager. Those are
Speaker 2: the things that the SAC is mad about. And I
Speaker 2: think if he didn't do any of those things, which
Speaker 2: are all really ancillary to like what people were reading
Speaker 2: him for, then I think he probably wouldn't get in trouble.
Speaker 2: I would caveat that by saying, again, I really do
Speaker 2: think that a lot of people really, really really dislike
Speaker 2: the business model of shorting a company, publishing bad stuff
Speaker 2: about the company, and then immediately covering. Like even if
Speaker 2: he never lied about that, even if he said in
Speaker 2: the fine print of his report like I could cover
Speaker 2: at any time, and then he went on TV and
Speaker 2: they said have you covered, he said no comment or
Speaker 2: even yes, Like, I think that people would still be
Speaker 2: really mad about that, because it just seems like that
Speaker 2: it's dishonest, and I don't think it is, but I
Speaker 2: do realize that people find it upsetting. Yeah, people think
Speaker 2: that if you're doing that, you can't really believe that
Speaker 2: the company is a fraud. And to me, it's just
Speaker 2: there's like a division of labor where he is in
Speaker 2: the business of spotting the frauds, calling attention to them,
Speaker 2: profiting from that first day move and then moving on
Speaker 2: to the next thing, and other people will provide the
Speaker 2: long term capital to be short the frauds all the
Speaker 2: way down or whatever.
Speaker 1: Yeah, and we should probably point out that he has
Speaker 1: pleaded not guilty to fraud charges.
Speaker 2: Oh, I think he might win. I think you might win.
Speaker 1: Like, well, yeah, his lawyer is basically I mean, he's
Speaker 1: making similar arguments to what you're saying that Left had
Speaker 1: no duty to disclose his personal trading intentions. He also
Speaker 1: added that the government wasn't accusing Left of publishing false information,
Speaker 1: and that feels important.
Speaker 2: That's true, and it's so important. You know, it's not important,
Speaker 2: I think to the secs, like to the government's like
Speaker 2: analysis of its legal case, but it's so important to
Speaker 2: everyone else. It's so important to me. Right, if he's
Speaker 2: publishing reports saying these companies are frauds and they're all frauds, Like,
Speaker 2: what is the problem with that?
Speaker 1: Maybe he should just be a journalist. I mean, he
Speaker 1: make a lot less money.
Speaker 2: That's the thing.
Speaker 1: He'd win the moral moral argument every time, would you.
Speaker 1: That's true.
Speaker 2: Journalists here and they don't you know That's that's a.
Speaker 1: Good question to propose to the broader public. Which do
Speaker 1: you dislike more journalists or short sellers. I don't know
Speaker 1: who would win or lose, however you want to phrase it.
Speaker 1: Robin Wigglesworth had a really long and interesting piece on
Speaker 1: fixing comme ETFs basically eating the bond market. He wrote
Speaker 1: it with Will Schmidt, and I have to say that
Speaker 1: the headline ETFs are eating the bond market. I thought
Speaker 1: this was going to be a negative story, but I
Speaker 1: don't think this is necessarily a negative piece.
Speaker 2: So he quotes me a little bit because I used
Speaker 2: to have a running gag.
Speaker 1: That's the important part.
Speaker 2: People are worried about bond market liquidity, and the notion
Speaker 2: was like there was the I don't know, a four
Speaker 2: year period where financial journalists kept saying bond ETFs are
Speaker 2: eating the bond market, and it's so bad because in
Speaker 2: a crisis, people will be so used to the liquidity
Speaker 2: of bond ETFs and then when they get their bonds out,
Speaker 2: they won't be able to sell them and bond prices
Speaker 2: will go down. And I never understood this concern and
Speaker 2: thought it was very silly, And now it seems to
Speaker 2: have gone away, and Raban now has this piece saying
Speaker 2: that bond ETFs are eating the bond market and that's good,
Speaker 2: and I think that I agree. It seems right.
Speaker 1: It does seem good. I mean there is, or there
Speaker 1: used to be, and maybe there still is, but now
Speaker 1: it just seems a little bit silly. A lot of
Speaker 1: doom and gloom about bond ETFs. We talked a little
Speaker 1: bit about the liquidity mismatch last week. I feel like
Speaker 1: all of those fears were put to rest in March
Speaker 1: twenty twenty when the FED started buying ETFs. Specifically, they
Speaker 1: started buying corporate bond ETFs, and they didn't buy that many,
Speaker 1: but they bought bond ETFs. So you have the FED
Speaker 1: stamp of approval on the structure and everything turned out fine.
Speaker 1: Like I can't imagine a better test.
Speaker 2: Yeah, I think that. I mean it's not just the FED, right,
Speaker 2: I mean, it's like in that period of crisis, it
Speaker 2: was hard to trade bonds, I think, because it's always
Speaker 2: hard to trade bonds in a crisis, but it was
Speaker 2: very easy to trade ETFs. And so I think the
Speaker 2: perception is that most market participants felt that the ETFs
Speaker 2: were adding to liquidity rather than subtracting, because at least
Speaker 2: you could trade the ETF right, which allowed you to
Speaker 2: do some sort of like macro positioning around credit, even
Speaker 2: if it was hard to get off individual bond trades.
Speaker 2: But I think the other point of Robin's piece is
Speaker 2: that the ETFs have largely made it easier to get
Speaker 2: off actual bond trades for a combination of reasons, one
Speaker 2: of which is that there are all these new dealers
Speaker 2: who you know, the sort of Jaane Streets of the world,
Speaker 2: who are big ETF market makers, And if you're a
Speaker 2: big ETF market maker, then those bond ETFs get bigger.
Speaker 2: You have to get into bond ETF market making, and
Speaker 2: if you're an ETF market maker, you have to trade
Speaker 2: both the ETF and the underlying and so Jane Street
Speaker 2: and all the other infloat trading, and all the big
Speaker 2: ETF firms have gotten into bond trading, and so that's
Speaker 2: another source of liquidity and another set of market makers,
Speaker 2: another set of balance sheets. And as banks have retreated
Speaker 2: from market making and a lot of financial products, you
Speaker 2: have new bond traders that have made bond trading a
Speaker 2: little bit more liquid and He also talks about portfolio trading,
Speaker 2: where instead of trading one bond at a time, you
Speaker 2: can call up Jaine Street and say I have four
Speaker 2: hundred bonds I want to sell, and they're like, yeah,
Speaker 2: we could probably stuff most of those into an ETF.
Speaker 2: So it's fine, Yeah, we'll take them all. And so
Speaker 2: instead of kind of paying four hundred bit asks, you
Speaker 2: kind of pay a tighter bit ask spread on a
Speaker 2: single portfolio. And that's I think improved liquidity for a
Speaker 2: lot of actual bond managers. So it's a very rosy
Speaker 2: story of like bond ETFs have made bond market liquidity nicer.
Speaker 1: It's really a beautiful tale and I love listening to
Speaker 1: it and reading it over and over again. I am
Speaker 1: interested to see how it evolves. Colo ETFs. I remember
Speaker 1: when those launched sometime in the past three to four years.
Speaker 1: There was a lot of pearl clutching about that. And
Speaker 1: there's one ETF.
Speaker 2: In Pertarit is going to lead to some pearl clutching.
Speaker 1: Oh definitely. It's a very scary three letter acronym. But
Speaker 1: there's this one colo ETF. The ticker is j triple A.
Speaker 1: It is so big. I think it recently got to
Speaker 1: ten billion dollars. It's by far the biggest, and there's
Speaker 1: some people who have pointed out that there's so much
Speaker 1: demand for this specific ETF, and you know, some of
Speaker 1: the flow is starting to increase to the other ETFs
Speaker 1: as well, that it's starting to potentially tightened spreads on
Speaker 1: clos just because all this money keeps pouring in, the
Speaker 1: ETF has to keep buying clos and that's actually having
Speaker 1: an impact in the cash markets as well, which is interesting.
Speaker 1: Like the question that that raises in my mind is
Speaker 1: you know, now you have this super accessible wrapper, maybe
Speaker 1: it's introducing a new class of investors into that asset
Speaker 1: class who didn't want to take the time to figure
Speaker 1: out how to do the mechanics of it before, but
Speaker 1: now it's super easy, and now you're seeing the ETFs
Speaker 1: potentially impact that market.
Speaker 2: Oh yeah, Like a CLO is a relatively painful thing
Speaker 2: to hold compared to a ETF, which is the stock. Right,
Speaker 2: So like if you're a retail investor and you want
Speaker 2: cl exposure, you can buy a CLO ETF. But also
Speaker 2: if you're an institution, it's an easier thing to get
Speaker 2: your head around, and it's an easier thing to trade too. Right,
Speaker 2: if you want one day of CLO exposure, you can
Speaker 2: buy the ETF in the morning and sell it in
Speaker 2: the afternoon, which you can't do as easily with a
Speaker 2: big diversified board. Oh have clos the story that you
Speaker 2: told the spreads coming in, it's just in any product,
Speaker 2: if liquidity is improved, you should expect the valuation of
Speaker 2: the product to go up, right, and the spreads to
Speaker 2: come in. And the ETF technology just improves the liquidity
Speaker 2: of anything it wraps. And so if you have some
Speaker 2: audience that would have said out it's like a pain
Speaker 2: to hold whatever, but we can hold it in ETF form.
Speaker 2: And you put an ETF form, then the liquidity of
Speaker 2: that product, of the underlying product goes up and the
Speaker 2: spreads go down. And obviously, you know, the example that
Speaker 2: we've talked about before is bitcoin, right, I mean Bitcoin
Speaker 2: was for some subset of investors a pain to hold,
Speaker 2: and then you put in an ETF and Bitcoin prices
Speaker 2: go up. So I think that it's a sort of
Speaker 2: general use technology. Yeah.
Speaker 1: I feel like the story of ETF so much of
Speaker 1: it just comes back to convenience. Like there's a few
Speaker 1: ETFs out there that just hold two year treasuries, and
Speaker 1: I remember when those launched there are a lot of
Speaker 1: crank saying, like, why bother, why would I pay someone
Speaker 1: to do this for me? It's like, because it's easy.
Speaker 1: It's the easiest thing on earth to just click a
Speaker 1: button you buy an ETF and then you don't have
Speaker 1: to worry about buying those bonds yourself. You know, it's
Speaker 1: about to say, I wonder how we're going to fit
Speaker 1: ETFs into next week's episode. But I'm going to Paris,
Speaker 1: so oh yeah, that's.
Speaker 2: An important programming note. KT in Paris and what is
Speaker 2: the podcast will be off next week?
Speaker 1: Right? Yeah, I'm so excited for me.
Speaker 2: Are you watching horse Olympics?
Speaker 1: I am going to the Olympics. I am definitely going
Speaker 1: to see track and field. I'm so excited, right yeah, your.
Speaker 2: Other sporting love? Is there best check and field event
Speaker 2: to watch other than like just running around? Like? Is
Speaker 2: there like is like javelin really exciting?
Speaker 1: Or My favorite event to watch is probably the eight
Speaker 1: hundred meters because that's what I ran very averagely in college.
Speaker 1: So I really like the middle distance events. Everyone loves
Speaker 1: the sprints though obviously like the one hundred two hundred
Speaker 1: meter relays are fun because it feels like Team us, say,
Speaker 1: manages to drop the baton a lot, So hopefully we
Speaker 1: don't do a lot of that this time around.
Speaker 2: We'll see enjoy your time in Paris and we will
Speaker 2: be back here in two weeks with more stuff Love.
Speaker 2: And that was the Money Stuff Podcast.
Speaker 1: I'm Matt Levine and I'm Katie Greifeld.
Speaker 2: You can find my work by subscribing to The Money
Speaker 2: Stuff newsletter on Bloomberg.
Speaker 1: Dot com, and you can find me on Bloomberg TV
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Speaker 2: The Money Stuff Podcast is produced by Anna Maserakis and
Speaker 2: Moses on Dam and special thanks this week to cal Brooks.
Speaker 1: Our theme music was composed by Blake Maples.
Speaker 2: Brandon Francis Nudam is our executive producer.
Speaker 1: And Sage Bouman is Bloomberg's head of podcasts.
Speaker 2: Thanks for listening to the Money Stuff podcast. We'll be
Speaker 2: back next week with more stuff